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FAREED ZAKARIA, HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria. We'll start today's show asking a simple question. Why has Washington become so dysfunctional? What are the roots of the discord? I put together a terrific panel of experts who have studied American politics closely. Then, Lloyd Blankfein, the chairman and CEO of Goldman Sachs on the great signs of strength the United States economy was showing before Washington went to war with itself. And on who's at fault in that war. Also, while Obama missed two big Asian summits, someone else has been taking advantage. I'll explain.

Finally Iran versus Israel. Is there a war in their genes?

But first here's my take. In trying to explain how Washington got into the mess it is in, pundits and politicians have focused on ideology. They point out that the country has become more polarized as have the political parties, in particular the Republican Party.

The diagnosis is accurate but there is another distinctive cause of the current crisis which might have even more long lasting effects. The collapse of authority especially within the Republican Party, which might mean that these new tactics of threats, crises and deadlock are now the new normal.

On the surface, the behavior of the Republicans today looks a lot like that in 1995 and '96 when the party took strongly ideologically oriented positions, stood its ground and shut down the government. But that movement was led by the speaker of the House, Newt Gingrich, who inspired, shaped and directed it from start to finish.

John Boehner, by contrast, has openly acknowledged that his understanding of leadership is to sort of manage whatever his people want to do as CBS's Bob Schieffer memorably put it. It proved easier to resolve the crisis in the 1990s because Gingrich had the power to speak for his side.

Boehner, by contrast, is worried that were he to make a deal, he would lose his job and he's right to be worried. Tea Party members routinely explain that they lie awake worrying that Boehner will compromise and cut a deal on Obamacare, the budget or immigration.

The Tea Party is quite unlike Gingrich's Contract with America Movement from the 1990s. It is a grassroots movement made up of people who have a deep, deep dissatisfaction with where the United States has gone over the past several decades, culturally, socially economically and crucially for this degeneration they blame both parties.

In a recent Gallup survey, an astounding 43 percent of Tea Party activists had an unfavorable view of the Republican Party with only 55 percent of them having a favorable view. They see themselves as insurgents within the Republican Party not loyal members of it. The breakdown of any party discipline coupled with the rise of an extreme ideology are the twin forces propelling the current crisis.

It's a remarkable reversal. The Republican Party used to be a party that valued hierarchy. The Democrats were the loose coalition of assorted interest with little party discipline. The Democrats always nominated outsiders for presidents. McGovern, Carter, Clinton, Obama. The Republicans, by contrast, nominated the guy who had waited for his turn. Bush. Dole. McCain. Romney.

Today the Republicans are dominated by the Tea Party which has no organized structure, no platform, no hierarchy and no leader. This story began of course in the 1970s as political primaries proliferated. More party establishments declined. It happened to the Democrats first which might be why we see this delayed reaction on the right.

But more recent technological and organizational changes have accelerated the shift making it easier for outsiders to fund raise, get access to free media, to establish direct connections with voters. At some point and after electoral defeat, the Republicans might move to the center. Ideological shifts come and go. But the decay of power, as Moises Naim calls it in his book "The End of Power," is moving in one direction and it will continue to transform politics.

The American political system is designed with many opportunities for gridlock and paralysis any way and these are only going to multiply. At the end of the day without the capacity for leadership, government becomes difficult and self-government becomes close to impossible.

Clinton Rossiter, a legendary political scientist, once proclaimed, "No America without democracy, no democracy without politics, no politics without parties, no parties without compromise and moderation."

Let's hope he was right about that last bit. For more on this, go to CNN.com/fareed. You can read my "Washington Post" column this week.

Let's get started.

You've heard my take, now let's get to my panel. All of whom have studied the subject deeply and written eloquently about it.

Norman Ornstein is a resident scholar at AEI and the co-author of the aptly titled, "It's Even Worse Than It Looks: How the American Constitutional System Collided with New Politics of Extremism." Jeffrey Toobin is of course CNN's senior legal analyst. He is also a staff writer at "The New Yorker" where 10 years ago he wrote "The Great Election Grab: When Does Gerrymandering Become a Threat to Democracy."

Still holds up very well after a decade.

And Vanessa Williamson is a PhD candidate at Harvard University and the co-author of "The Tea Party and the Remaking of Republican Conservatism." Also a very fine piece of work.

Norm, one of the things I want you to first explain to us is there are people who say, look, using the debt ceiling or even the shutdown as a threat to get what you want, this is part of what Congress has done for the last 20 or 25 years. You actually wrote very eloquently saying no, it actually isn't. Why?

NORM ORNSTEIN, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: It really isn't. We've seen the debt ceiling used as a political weapon or tool or a game for a very long time. You could see the scripts when your party has the presidency, members will get up and say, we've got to be disciplined. We have to be careful about the full faith and credit of the United States and the other party says we're going to stand firm to make sure that our debt stays under control and then they'll switch the scripts.

Barack Obama played that game when he was a senator. But everybody knew it was a game. They were never really going to threaten the full faith and credit of the United States. Back when Democrats had a majority in the House of Representatives and Ronald Reagan was president, we saw the debt limit used as a lever to -- over disputes over spending but again everybody knew that there were votes in reserve just in case.

Now using the debt limit as a real threat, I will send the country over the cliff unless my demands are met, as a hostage for extortion purposes, that is simply unprecedented. It started in 2011. It's escalated now. It's unacceptable.

ZAKARIA: And a lot of times what those negotiations, they would take the debt limit and tack it on to an ongoing budget negotiation, right?

ORNSTEIN: Yes.

ZAKARIA: There were times when something was being negotiated and say, let's do it all together.

ORNSTEIN: It was always folded together with a negotiation over spending which of course was directly related. The one time you saw a deal that didn't directly involve that was when tip O'Neil said to Ronald Reagan, my Democrats will vote for your increase in the debt limit if you write them each a personal letter thanking them for doing it so it can't be used against them in an attack in the next election. But that's obviously very different than what we're seeing now.

ZAKARIA: At the heart of this, Jeff, you think is redistricting?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: In the House of Representatives.

ZAKARIA: Because -- yes. Explain why.

TOOBIN: Well because really ever since the 1980 census, both parties have decided that they are going to preserve their districts and computer technology, software, has allowed them to craft districts that are overwhelmingly Democratic or overwhelmingly Republican. So that means the incumbents in Congress fear primaries from their own party more than they fear the opposition party which means ideological purity is a greater value, political value, for many congressman than bipartisanship and that especially on the Republican side has led to a very substantial caucus who simply are more extreme even than the Republican Party now which is a lot more conservative than it used to be.

ZAKARIA: And what that means as the flipside of that is the 60 members of the House of Representatives who have really been at the heart of this whole thing. They find that in their districts, which are overwhelmingly Republican, overwhelmingly white, they are very popular for having threatened -- for having attacked President Obama.

TOOBIN: There is as far as I know no Republican member of Congress who has paid a political price for being too extreme. There have been plenty of moderates in the Senate and in the House who have lost their seats because of this or at least suffered serious challenge. No one has suffered by being too extreme and politicians respond to those sort of incentives.

ZAKARIA: So, Vanessa, why is this happening in the Senate which is not subject to redistricting and why is it happening in the whole political system, the move to the extreme particularly on the right?

VANESSA WILLIAMSON, PHD CANDIDATE, HARVARD UNIVERSITY: Yes, I'm glad that you raised that. I mean, it's definitely the case that while at times of redistricting we see, you know, increases in the sort of safety of seats for whoever gets the opportunity to choose their districts, but the pattern has been happening for decades not just on the census but over all the years and I think that an important aspect to think about that is sorting of the American people.

It's not just that we're counting people in different categories, but the ideological difference between people has grown and they've sorted themselves into neighborhoods that are more economically similar, more socially similar and that results in far less need to in their representatives.

ZAKARIA: Norm, you've said and you've taken a lot of flak for this. You've said that all this is true and there's kind of -- there's a bipartisan aspect to it that is happening on each side but that the Republican Party, you've called them an insurgent outsider and you said it's really the Republicans who are to blame more in this politics of extremism. ORNSTEIN: Yes, and of course we've seen the parties polarize but the fact is that the Democratic Party has moved a little bit to the left. The Republican Party has moved dramatically to the right. We've got lots of evidence for that. It's not just what I say. When you have Jeb Bush say during the last campaign that Ronald Reagan couldn't win a nomination in his own party now, it tells you something.

But it's not just polarization. It's become tribal. Some of this goes back to Newt Gingrich and the strategy that he used to win a Republican majority in the House in 1994. Some of it is the new tribal media. But the fact is you have a party now with a dramatic increase in the number of people who are not conservatives, Fareed. They don't native a radicals. They don't believe in the smaller, leaner meaner, government where the parts that you need to work efficiently. They want to don't the whole thing up.

They don't believe in institutions. And the fact is there are now the dominant forces in the party and you see the same thing on the left.

TOOBIN: Institution of the moderate Republican. In the United States Senate there were a dozen of them. In the 1970s. Maybe there's one now, Susan Collins. On the Supreme Court moderate Republicans dominated for decades all gone.

ZAKARIA: We need to take a break. When we come back we're going to solve this. We've heard the problem. What is the solution when we come back.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Norman Orenstein, Jeff Toobin and Vanessa Williamson, talking about American politics and its dysfunctions.

Jeff, if redistricting is at the heart or at least one of the key drivers here, what's the prospect that this is going to stop ? I mean, there are a few states that have tried to create real congressional districts but mostly you are asking the very people who have done it to undo it.

TOOBIN: In that article you mentioned, it was written as a preview for a Supreme Court case that challenged the institution of partisan redistricting and that challenge lost. So it's open season. The redistricting will continue. As for what can be done, I think parties have to learn their lessons. I think losing presidential election is what makes parties change. Bill Clinton took the Democratic Party toward the center. Tony Blair took the Labour Party toward the center in Britain.

They did it because their party kept losing. Maybe there's a Republican out there who will lead the Republican Party towards the center.

ZAKARIA: Vanessa, your book is about the Tea Party and remaking of the Republican conservatism. What are these people likely to learn? Because what I'm struck by is they're so deeply dissatisfied with the world -- you know, the last 40 years, maybe longer. They really want to undo stuff that happened in the 1960s and beyond. That's 50 years of American, you know, history whether you call it progress or not. It's unlikely to happen.

WILLIAMSON: Yes, I think that that's a really important point. So when I was traveling the country and interviewing Tea Party members, I was struck by a couple of things. First of all I was struck by a remarkable level of citizenship. I mean, these people are really engaged in the grassroots level. They go to local committee meetings that no one goes to. They run for school board. They do all of these things that are frankly very admirable but at the same time they don't in their vision of democracy have much of a sense of compromise.

It just wasn't a part of what they had in mind that at some point there was going to be a reasonable opposition with whom they would have to negotiate and I think that that attitude has risen all the way up through the highest ranks of the Republican Party at this point.

So the concerns that you're seeing among older conservatives, which have frankly been there for a long time about the country changing and changing demographically, young people aren't entering the workforce the way that they used to, all of these sorts of concerns, those have been there for a long time.

But because of the Tea Party movement, there are now connections between very elite elements in Washington that want to roll back all kinds of popular programs like Medicare and grassroots conservatives who used to be organized through churches, so now that a lot of members of Congress are kind of in a pincer position, stuck between large funders at the top pushing them rightward and grassroots primary voters who are also pushing them in that same no compromise direction.

ZAKARIA: And then there's the issue of the narrow casted media where you can find a way to amplify your voice and think tank process.

And I want to ask you a personal question. You work at the American Enterprise Institute which is conservative.

ORNSTEIN: Yes.

ZAKARIA: You generally have in my opinion always been a straight shooter, nonpartisan, yet you've come out and said here the Republicans really bear more of the brunt. Are you going to pay a price for this?

ORNSTEIN: You know, I haven't paid a price at AEI. It's a very open place and they leave me to do whatever I want to do even though I cause heartburn to a number of people. But when Tom Mann and I took this position, and at that point it wasn't nearly as palpable and clear as it is now, we got pushed back more from the mainstream press which hates the idea of not saying they're all to blame, it's everybody's fault, than from anybody else. A lot of Republicans inside Congress were not happy because this was the message that they did not want to have. But so many former members of Congress, Republicans and business leaders, said you're right. We're losing our party. And that I think is happening. And you know, the narrow casting of the media, as we talk about what we might do about this, I'm really worried that we're tribalizing in so many ways what started as an elite level has metastasize to the states and now moving to the public.

If you get people who hear things that they want to hear and come to believe things that aren't true, and it's amplified by social media, all of us get these e-mails from friends and relatives with the lead, "can you believe this," which is a clear picture everybody out there if you get that, don't believe it. It's not true.

(LAUGHTER)

But once you come to believe it, you really do. And what we're seeing with a lot of people that Vanessa has talked to is they're not really Republicans. They don't particularly like their own party or the leaders. They think that Mitt Romney lost because he wasn't conservative enough.

And I'm afraid losing elections now for many of them, it may take more than what we usually think. Three -- presidential elections in a row you say we'll come back to the middle. That's what Democrats did with Bill Clinton. I'm afraid this is going to go on for longer and there's no easy structural solution to it.

WILLIAMSON: I think that's exactly right. I mean, just talking about some of the people I interviewed. People were doing, you know, three, four, six hours of FOX News watching a day. So I mean they are getting one very narrow picture of what the country is like.

ZAKARIA: Well, if only they watched three hours of my program.

(LAUGHTER)

ORENSTEIN: We'd all be better off.

TOOBIN: Don't make it sound like a totally bad thing. Extensive television news watching.

ZAKARIA: Thanks for joining us.

Lots more ahead on the show including a conversation with the CEO of Goldman Sachs, Lloyd Blankfein.

But up next, what in the world. Obama missed two big Asian summits last week and someone else has been taking advantage. I'll tell you who.

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What in the World" segment. Here's the traditional funny shirts class photo from APEC. Last week's Asia Pacific Economic Cooperation summit. The presidents of China, Mexico, Russia and many others were in Bali, Indonesia. On the far right tucked away, you see John Kerry, the U.S. secretary of state. Where is President Obama?

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Good afternoon, everybody.

(END VIDEO CLIP)

ZAKARIA: Well, he was stuck in Washington, of course, dealing with the government shutdown and threats of default.

Obama missed not only APEC but also the ASEAN, the Association of Southeast Asian Nations Summit, as well as planned visits to Malaysia and the Philippines.

For Asians the symbolism was clear. The United States was struggling to get its house in order. And perhaps to highlight the contrast, China was present in full force putting on an exhibition of power and diplomacy.

President Xi Jinping attended the APEC meeting and then made special trips to Malaysia and Indonesia. The premier Li Keqiang attended the ASEAN meeting and traveled to Thailand.

Consider the deals that were struck last week. President Xi promised to triple his country's trade with Malaysia within four years. In Indonesia, he promised tens of billions of dollars in investment and he courted Australia's new prime minister Tony Abbott, to whom he promised more trade and more cooperation and technology and energy.

It's not just trade. A new report from the nonprofit Rand Corporation outlines the dramatic escalation of China's foreign aid. In 2001, Beijing spent $1.78 billion on foreign aid. By 2009, it was spending nearly $125 billion. In 2010, the figure rose to $169 billion. By 2011, it reached $189 billion. About 3 percent of China's GDP. And it is still going up.

The money trail points to a country flush with cash looking to snap up resources and opportunities around the world.

What has been less clear in the last two years is the effectiveness of Beijing's foreign policy. As the Chinese scholar Jeng Huang (ph) points out, not a single member of China's seven member standing committee, the pinnacle of power in Beijing, is a foreign policy expert. The country's foreign minister doesn't make it into Beijing's 25 percent politburo, and China has made several missteps in the past three years.

It escalated territorial disputes with Japan, the Philippines and Vietnam. It was seen as a bully flexing its muscles with its neighbors. These signals mostly rhetoric were a contradiction not only of China's stated policy of a peaceful rise but also of its actual track record. Remember China has not actually been involved in a single war since 1979 when it had a skirmish with Vietnam.

But the moves worried its neighbors enough that they publicly asked for greater American involvement in Asia. This past week China's leaders were at pains to display a softer face. They described China as a gentle giant, not an aggressor. Meanwhile, they put the focus back on the economy and building business ties with their Asian neighbors.

As Li put it last week, "We should make the pie bigger and share this pie with our people." It's a smart win-win move. China's neighbors may worry about a big powerful giant but they still want to trade with it.

President Obama's pivot to Asia has been one of his wisest foreign policy moves. Well conceived and well executed. But it, too, has now been weakened. One more consequence of the vicious partisanship in Washington.

So you see a China that learns from its mistakes, smartens up and moves ahead. Washington, on the other hand, keeps returning to deadlock, repeats its most stupid moves and continues to govern from crisis to crisis.

It is a sad contrast that Asia and the world can see.

Up next, a conversation with the CEO of Goldman Sachs, Lloyd Blankfein. We talk about the economy, Wall Street and much more.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington with a check of the headlines. The House is in recess today leaving the debt ceiling and government shutdown still unresolved. Senate leaders Mitch McConnell and Harry Reid are expected to have another meeting today. Though one isn't scheduled at this point. Senator Susan Collins of Maine told me earlier today, she believes there will be a resolution to the shutdown this week.

Right now, thousands of people, amongst them Sarah Palin and Senator Ted Cruz are descending on the World War II Memorial in Washington to protest its closure during the partial government shutdown.

(BEGIN VIDEO CLIP)

SARAH PALIN, (R ), 2008 V.P. CANDIDATE: You look around, though, and you see these barricades and you have to ask yourself is this any way that a commander-in-chief would show his respect, his gratitude, to our military? This is a matter of shutdown priorities.

(END VIDEO CLIP)

CROWLEY: Senator Cruz said President Obama is using veterans as political pawns in the shutdown.

A tropical cyclone Phailin made landfall on the eastern coast of India, but mandatory evacuations of nearly a million people ahead of the storm likely limited the number of casualties. Still, at least 13 people were killed in the storm. The strongest in the last 14 years. In 1999, another cyclone made landfall in the same place. It killed 10,000 people.

Those are your headlines. "Reliable Sources" is at the top of the hour. Now back to Fareed Zakaria at "GPS."

ZAKARIA: The government shutdown and default debate have caused everybody stress from the retired teacher with a pension to America's biggest corporations all worried all more cautious with their spending and investment. And that's one of the tragedies of these past two weeks. Because before then, the American economy was really showing impressive signs of revival. Those positive signs of what I talked to Goldman Sach's Chairman and CEO Lloyd Blankfein about when I sat down with him recently at the Clinton global initiatives annual meeting here in New York. Listen in.

(BEGIN VIDEO CLIP)

ZAKARIA: Lloyd, when you look at the U.S. political system, it seems deadlocked, paralyzed, use whatever phrase one wants. But the American economy seems to be coming back in a pretty broad way.

LLOYD BLANKFEIN, CHAIRMAN AND CEO, GOLDMAN SACHS: Because it's pretty resilient. And listen, the American economy, you're right, it's doing well and there's a lot of tail winds, you know, energy, you know, it can tick through the amount of tailwinds that are happening. But I think ultimately, it's the culture of the United States. You know, we all had the same noise, the same Sturm and Drung, the same, you know, dealing with the consequences of the credit bubble. But in the United States, we recapitalize the bank. It was painful, people didn't like the way it was done -- nobody liked -- by the way, and the aftermath was also hard. But it got done. Restructured. Accepted a higher unemployment rate. In other words, didn't make people keep the same employment, didn't as often happens in Europe when you have that, you know, different balance between social interests and economic interests. Did all of that painful stuff and now it's as noisy as can be.

In other jurisdictions, you had all of the noise, you had all the confrontation, but you didn't actually get anything done. And all of that remains forward so the United States is in a position where again, banks are recapitalized, companies are efficient and not because they protected employment, sadly because they accepted higher rates of unemployment. That's a social decision that gets made. It's not unreasonable to make a different one. But that's what gets made in the United States. But now, that those companies are stronger, they're in a position to grow, to hire people back, run their businesses on a sustainable basis, very liquid. Lot of cash. And I think well positioned for the recovery. And by the way, what growth we have now it's not that QE represents the first step to normalization where we're all tense and nervous whether the economy can absorb it, we have already taken a substantial number of steps towards normalization. The biggest subsidy an economy had was the fact that we were spending so much money than we were taking in in taxes. We've closed up a substantial amount of that budget gap. You know, sequestration. Payroll taxes. Higher taxes on others. One step towards normalization was for the ten-year interest rate to go from 1.5 percent to almost three percent. Those are all steps toward normalization. The removal and the tapering off of QE will be another step. But it's not the first step.

ZAKARIA: So, you don't fear it? You're not one of these people who says once the Fed starts withdrawing these extraordinary measures, you know, the whole system is going to collapse?

BLANKFEIN: It joins a long parade of things over which I'm anxious. And that's an element. But the point is it is not the first step and can the economy, whatever growth we're seeing now, is already in the face of the headwinds of a convergence of our spending and our revenue and maybe not to the same place that some people would want it, but maybe two-thirds there.

ZAKARIA: About two-thirds of the way to ...

(CROSSTALK)

ZAKARIA: ... this target.

BLANKFEIN: And now, and we -- and so everything -- and all the growth we see this year is in the face of that, in other words, we have already absorbed some of the consequences of normalization. The tapering of QE is not the first step.

ZAKARIA: But Lloyd, let me ask you this. Is it fair to make this, you know, kind of moral equivalence if you will? Yes, both parties are moving in partisan directions. But only one party is threatening to blow up the United States' credit rating.

BLANKFEIN: You know, that's right at the moment. And look, I can -- you can find fault -- again, in the substance of it, you could say also part of the problem was this is not -- we don't have a parliamentary system. We have a system where the moderates of both parties are supposed to unite together and have a moderate solution, which by the way, may or may not be the right result. But it certainly brings about the most stable result because then when the party in power shifts, the other party -- the next party had already signed onto it and made its contribution owns it. For one moment in time in my life, we had a parliamentary system in effect where you had the -- both Houses had a veto proof majority and the president was of one party, so it was effectively a parliamentary system and it passed legislation without having to compromise and consequently it didn't. And that created a very unstable situation.

So, the reaction to that I think is a terrible reaction. You could go back to a first cause and say if some of these elements and some of this -- some of the legislation that had gone on ...

ZAKARIA: If Obamacare had been passed with more Republican support.

BLANKFEIN: More Republican support and the concessions, maybe the minor, maybe some modest concessions that would have had to make to earn that support, it would have been a much better -- much more -- much more stable outcome. Again, some people -- you know, does democracy produce the best results? In a way, it produces the most stable results and the most stable tends to be the best results. So, now we have a situation where we have Obamacare. And the Republicans want to destroy it. And the Democrats want to -- eventually you're going to have a change of government. It's not a good situation. I could find -- I could see the world through the lens of either side. Right now my focus is really on what the Republicans are doing, which I think is -- which I don't consider to be the best constructive civic behavior, because if they don't like the resolution, but it is resolved. To go about and say I'm going to blow up the budget or I'm going to blow up the credit. I'm not going to pay for debts that I had already taken on. I don't think that's right. If you go a step back and you see the underlying cause for their frustration, that wasn't right either.

(END VIDEO CLIP)

ZAKARIA: Up next, more of my conversation with Lloyd Blankfein including how he intends to mark the second anniversary of the Occupy Wall Street movement.

(BEGIN VIDEO CLIP)

BLANKFEIN: I must send flowers.

(LAUGHTER)

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: More of my conversation with Lloyd Blankfein, the CEO of Goldman Sachs. I was moderating a panel discussion at the Clinton Global Initiative along with Blankfein was Jim Rogers, who is retiring after 25 years as the CEO of Duke Energy, one of America's biggest energy providers and Denis O'Brien, the owner of Digicel. Listen in.

(BEGIN VIDEO CLIP)

ZAKARIA: One piece of the American recovery, Jim, has been the energy story. Tell us from your perspective how big is that story? You know, of shale, of natural gas, of tight oil, all of these things. You know, I think everyone was expecting a technological revolution in energy and they all expected it to be wind and solar and there was a technological revolution in energy, but it was in the extraction of hydrocarbons, correct?

JAMES E. ROGERS, CHAIRMAN, DUKE ENERGY: That's correct. And actually, Shell gas is probably the most transformative innovation that occurred in this country in over a decade. It's been a great -- I mean it's been -- and as Lloyd said, a tailwind to the economy, but also in terms of achieving our environmental goals, we're in the 1993, '92 -- '93 level of CO2 emissions in this country, and yet we have significantly more people and a much larger economy. So I think that it's been transformative both in driving our economy, but transforming in meeting our environmental objectives at least as far as climate change is concerned.

(END VIDEO CLIP)

ZAKARIA: That was Jim Rogers, the chairman of Duke Energy. I also asked my panelists about income inequality. A hot topic not only in America, but around the world these days. How did we get so unequal and what responsibility do corporations have to fix the problem? Listen in.

(BEGIN VIDEO CLIP)

ZAKARIA: This is now a kind of anniversary of the Occupy movement. There's inequality and protests around inequality in many of these countries from Brazil to Turkey. So ...

BLANKFEIN: America.

ZAKARIA: Right. So let me ask you, looking back, you know, with Occupy Wall Street, you know, having its anniversary, what do you think it all means? That Goldman Sachs wasn't incidental to this whole issue.

BLANKFEIN: I must have missed it.

(LAUGHTER)

BLANKFEIN: I don't know why this was such a big anniversary. I must send flowers. Look, I think there was -- I think there's in the world today and partly as a result of rapid change in technology, there are -- there's a bit of a winner take all aspect in some of these aspects. If somebody makes a good product, they want the great product. There's no doubt that the flak world has had some adverse consequences in addition to the great consequences. All of these open markets are making, you know, the manufacturing of every TV in the world is going to take place in Taiwan and it's not going to take place here and countries have to compete and win and if a country comes in secondly, they may not get anything in a certain kind of product line. That's making for winners who win a lot and a lot of people who aren't able to keep up competitively and it's a very bad situation.

And it's not just made better by income redistribution because people don't want to just be sustained, kids getting out of school need jobs in order to have jobs they have to be surrounded by people -- they have to be in the context, in which things are made that other people want to buy. And that's not true in every place around the world and it became less true in the United States over the last generation. So, income redistribution is part of a fix of part of a problem but the real thing in the United States and other countries who want to be successful is you have to be competitive and you have to make things that people want and you have to make them at a rate where you can price them so that you beat out other competitors.

ZAKARIA: Dennis, how do you look at the issue of income inequality? Because even Ireland -- you know, I know that there's been huge discussion about it because you've had a lot of growth but you've had a huge expansion of income inequality.

DENIS O'BRIEN, OWNER, DIGICEL: Well, I think, you know, certainly you have to take some really heavy doses of cod liver oil. That's been, you know, very, very tough for three or four years. And we've seen real wages drop by in many cases by 20 percent. So, you know, we just as a country got ahead of ourselves and now we're kind of an emerging economy again along with Spain, probably even Portugal. And just coming back to what Lloyd was talking about there and you mentioned, you know, obviously the Occupy Wall Street, I would be on the left of that because I think we should be listening to some of the things that these people are saying. And now I would actually have a sneaking regard for some of the things they say. And if you look at CGI, it's a perfect antidote to that because major corporates whether they are in the U.S. or Europe or all around the world, multinationals, need to do more in their communities and, you know, for example, Goldman Sachs has done fantastic community initiatives here in the U.S. But more and more we need to move away from this taking boxes of CSR statement in our annual reports to actually doing something impactful.

And I think, you know, particularly in Africa, particularly in all of the emerging markets, companies that go and invest in those countries really have to do something meaningful to actually change that country. And I think what, you know, this is all about -- is really doing that. You know, people standing up and saying, making a promise to do something and more and more those kinds of things that activity will, I think, be the antidote to, you know, the Occupy Wall Street movement.

ZAKARIA: Did you learn anything from the Occupy Wall Street movement?

BLANKFEIN: Well, there was a lot going on, there were a lot of lessons being given at the same time.

(LAUGHTER)

BLANKFEIN: It's hard to separate them out. But of course, I did. You know, I would like to, you know, say something and respond. The biggest contribution that we make and in fact as I look at my fellow panelists that they make is not going to be in the philanthropic thing, although we do that also. But it's in our core businesses. And I think one thing I would like to say to the Occupy Wall Street interests and others is that business has helped lift people out of poverty and philanthropy should fill in the gaps. But if I had to say, which is made the best, whether it's philanthropy or businesses doing what their core activists are, I would take the latter.

(END VIDEO CLIP)

ZAKARIA: That was Lloyd Blankfein of Goldman Sachs along with Denis O'Brien of Digicel and Jim Rogers of Duke Energy. Up next, there are a number of things that Iranians might disagree with Israelis on, but what got Iranians really mad was a comment about clothing. Right back.

(COMMERCIAL BREAK)

ZAKARIA: On Tuesday, the U.S. Federal Reserve began circulating new $100 bills for the first time in more than a decade. It brings me to my question of the week. What country is known to be the world's top producer of counterfeit dollar bills? Is it A, Peru, B, China, C, Mexico or D, the United States? Stay tuned and we'll tell you the correct answer. Go to cnn.com/Fareed for more of the "GPS Challenge" and lots of insight and analysis. You can also follow us on Twitter and Facebook. Also, remember you can go to iTunes.com/Fareed if you ever miss a show or a special. This week's book of the week is Norm Ornstein's and Thomas Mann's "It's Even Worse Than It Looks." This is the book I mentioned earlier when we had Ornstein on the show. If you want to understand what's happening in Washington, you really have to read this book by two impartial scholars that dissects how we got here and where we are likely to go.

Now for the last look. It's no surprise that Israel's Prime Minister Benjamin Netanyahu offended some Iranians with what he said at the United Nations.

ZAKARIA: But that comment actually wasn't what sparked an anti- Netanyahu Twitter campaign in Iran last week although it was a clothing related faux pas.

(BEGIN VIDEO CLIP)

NETANYAHU: I think if the Iranian people have their way they would be wearing blue jeans, they would have western music, they'd have free elections.

(END VIDEO CLIP)

ZAKAIRA: Perhaps Mossad missed this one. But we could have helped him out here. You see, Iranians do wear jeans. They've done so for years. We saw a lot of people in denim when we were in Tehran two years ago like this man and that man and this woman and that woman. And it goes on and on and on. As I said at the time, Tehran is a bustling cosmopolitan city, and its people are very fashionable. But Iranians found his comment condescending. They took to Facebook and Twitter and the message was clear. Zip it, Netanyahu, we wear jeans. They posted pictures of Iranians doing just that. Praying in jeans. The ayatollah reading to a child in jeans and photos like this one, mocking Bibi's famous red line speech.

The correct answer, by the way, is Peru. According to the U.S. Secret Service, 19 percent of the counterfeit dollars circulating in the United States come from Peru. The new Benjamin Franklins have security features like a 3D ribbon with Liberty bills that turn into the number 100 as you move the bill up and down, as well as the Liberty bell and the number 100 that changes colors as you go from side to side. It just got harder for Peruvian criminals.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."